The Federal Reserve will express its opinion on the trajectory of monetary policy on Wednesday evening and a further rate reduction of 25 basis points is widely expected. However, for a Fed with different souls within it, the moment is delicate, given the continuing shutdown of government activities. which drastically reduces the publication of macroeconomic data. Essential data for central bank officials to assess risks to inflation and employment in education and make subsequent decisions.
A further rate cut is expected on Wednesday
On the agenda for the last week of October, one of the most important events will certainly be the Federal Reserve meeting on Tuesday and Wednesday. Analysts expect the Monetary Policy Committee (FOMC) to cut the benchmark interest rate by 25 basis points to a range of 3.75% to 4%.
The expected move follows the cut of the same size already made by the US Central Bank last month. The minutes of the September 16 and 17 meeting showed that the Committee’s sentiment coincided with a survey that the Fed sends to primary dealers in the financial markets, the report said.
“Nearly all Desk survey respondents expected a 25 basis point cut in the target range for the federal funds rate at this meeting, and about half expected an additional cut at the October meeting. The vast majority of respondents expected at least two 25 basis point cuts by the end of the year, while about half expected three cuts over the same period.”
it is stated in the minutes.
The minutes also showed that officials reiterated that they would assess risks to both inflation and employment as they make their next moves.
In such a framework, attention will certainly also be paid to the usual post-meeting speech by President Jerome Powell, who is unlikely to go overboard on another cut in December as well as on the moves for next year, which will depend on the name Donald Trump will choose to lead the Fed in place of Powell.
On Wednesday, in addition to the decision on rates, the Fed will probably announce the end of “Quantitative Tightening” (QT), the balance sheet reduction that began in 2022, with the aim of reaching a level of “abundant” bank reserves without creating turbulence in the markets and draining liquidity from them.
The various souls of the Fed
Inside the Federal Reserve, opinions are not uniform. Most officials, except Trump’s Miran, say the tariffs are helping to raise inflation. Warren, another governor close to Trump, also spoke out about the need for further rate cuts, but with more moderation than Miran; while most of the other members of the Monetary Policy Committee are closer to Powell’s positions, while not excluding other cuts, they invite us to proceed with caution, following a data-driven approach. However, this approach currently has to contend with the US government shutdown which has blocked the dissemination of most macroeconomic data.
Inflation data
Among these, in fact, we remember the publication of September inflation postponed from 15 to 24 October. The consumer price index came in lower than expected, rising 0.3% MoM/3.0% YoY for headline inflation and 0.2% MoM/3.0% YoY for core inflation (excluding food and energy). The consensus forecast was for headline inflation of 0.4% month-on-month and 0.3% month-on-month for core inflation.
The moment remains crucial for the Fed considering that “the publication of the October consumer price index promises to be an unknown”, recalled George Brown, Senior Economist at Schroders. Last Friday, in fact, the White House announced that there will probably be no publication of data on consumer prices next month.
